Traditional IRA conversion to Roth IRA in 2010,2011,2012
I am over 65 and would like to convert a traditional IRA to a Roth IRA in 2010. If I convert $300,000 in 2010 I would like to pay the Federal taxes on $100,000 conversion in 2010 and the remainder of the taxes deferred to 2011 and 2012. Is this possible.
Permalink Submitted by Alan Spross on Wed, 2009-11-11 22:40
No. You must either defer 50% each to 2011 and 2012, or opt out of the deferral and report the entire conversion in 2010 income. However, if you are married and your spouse has an IRA or employer plan to convert, they can make a different decision than you do. One spouse could report in 2010 and the other spouse could go with the two year deferral.
You should still avoid paying a higher tax rate on any of these conversions than you expect you expect to pay in later years unless you have some particular estate planning considerations.
Generally, if you are planning incremental conversions each year, you would opt out of the deferral and just convert 100,000 each year. That way, you still get to use your marginal tax bracket for 2010, and when you get to later years you can base your conversions on the tax rates at the time. Once you convert in 2010 and pass the recharacterization date of 10/17/2011 you are vulnerable to tax rate increases in 2012. But the recharacterization options gives you the benefit of a second look at your conversion decision or amount.